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Assume that the one - year interest rate is 3 % p . a . in the UK and 2 % p . a .

Assume that the one-year interest rate is 3% p.a. in the UK and 2% p.a. in the Euro area. Also,
assume that the current spot exchange rate of one pound to the euro is 1.1500/ and that the
corresponding one-year forward exchange rate is 1.1400/
ii) A UK investor has 200,000 to invest for one year either in the Euro area or the UK. Using
the above information, determine which investment will generate a higher return.

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